OUR NEW WEBSITE IS UP NOW WHERE THE DAILY BLOG ENTRIES ARE ON THE TOP LEFT PORTION OF THE HOME PAGE, PLEASE GO THERE FROM NOW ON TO READ MY DAILY COMMENTARIES.
EXISTING CLIENTS, BEAR WITH ME THE SUBSCRIBER ACCESS PORTION OF THINGS IS NOT DONE YET AND THERE ARE SOME OTHER TECHNICAL ISSUES REGARDING POSTING COMMENTS WHICH WILL BE RESOLVED IN A DAY OR TWO. I GOT TIRED OF WAITING AND JUST WANTED TO LAUNCH IT AND ADD/FIX IT AS I MOVE ALONG.
THERE WILL BE MORE VIDEOS AND ADDITIONAL PAGES ONLY AVAILABLE TO SUBS SO JUST GIVE ME A LITTLE TIME. THE LEVEL OF SERVICE HERE IS ABOUT TO GO WAY UP.
I KNOW PEOPLE WANT MORE AND IT IS COMING NOW THAT I HAVE A DECENT PLATFORM TO WORK FROM.
THANKS FOR YOUR PATIENCE
PLEASE READ THE DISCLAIMER AT THE BOTTOM OF THIS PAGE WHICH APPLIES TO ALL CONTENT IN THIS BLOG AS WELL AS ANY OTHER MATERIAL FROM WE ARE FUTURES TRADERS LLC. READING ANY CONTENT BELOW CONSTITUTES AN AGREEMENT BY ALL READERS THAT THEY HAVE READ AND AGREE TO ALL THAT IS SET FORTH IN THE DISCLAIMER AT THE BOTTOM OF THIS PAGE.
Thursday, April 25, 2013
STOCK MARKET SELL SIGNAL - ONE LAST
The above chart is the Bernanke 500 formerly known as the E Mini S&P 500. I have a very short term trading system I have been working on that enters at specific spots and exits on the first profitable opening. For Friday a trade is indicated one tick below today's low, it is a short entry. This system has no bigger overall significance, it is just a short term trade designed to get in and out very quickly similar to the Bond System. Most of my other techniques designed to catch more swing types of trades have turned up enough to negate a short entry. That situation could change in a few days but for now it is a no. What I am left with is just this short term system trade in terms of trading a short in this market.
We are getting nice relief rallies in the metals after the recent meltdown. One of the old adages is support becomes resistance, so if that is true the 1530 area should provide a good selling point for another leg down. It is a commodity just keep that in mind. Technical indicators have to re-cycle after you get a move as big as that because they get stretched to levels rarely seen. If you trade using them study what happens with them when these extreme short term moves take place. I think you will find that they give a lot of false signals following time periods like this.
Getting back to the trade above, you can see the momentum divergence that has been building with now a large 3 point divergence in place. There have been quite a few false setups like these since the FED took over the stock market so it is tough to have any strong enthusiasm about this divergence which in normal conditions would be meaningful. The trading patterns in this market are so odd now that I don't know what to make of them sometimes. We go through periods where the volume just falls off a cliff then out of the blue accelerates quickly. HFT they cry, perhaps, but that does not explain the periods of no volume in my mind. I wind up not trading this market as much as I used to because these patterns are so screwy my trades don't setup as much in the indexes.
Here is a general look of the Gold resistance setup.
Have a great weekend
Wednesday, April 24, 2013
STOCK MARKET BREAK OUT OR ROLLOVER?
We have bounced enough now where we have taken me out of my ideal setup for a sell in the Bernanke's. All we are is one more bad economic report away from a new high. How ironic is it that we need bad reports for stock rallies? If you keep in mind who is doing the buying it makes sense and we have to keep that in mind at all times. It does make trading the stock indexes very difficult, it is essentially a completely bogus market at it's core now. That flash down and reverse the other day on that twitter skit was really interesting. I think the complete lack of volume tells us that many people are just elsewhere where the markets are still somewhat free of direct manipulation. If you insist on being a 5 min chart ES trader best wishes, that is just impossible in this day and age.
What I am looking for now is for us to move sideways for a few days to see what happens. We could just take off again, the short term things I use are now mixed. I do have the one component above that is bearish still showing a potential roll over in the price momentum, yet basis the ES we are almost back to the highs. My other two things I use have both turned up too much for a short right at the moment. There is nothing for me to do here right now. I did get popped on my B of A short for $400 on 1,000 shares. The problem like I have mentioned so many times, is trading individual stocks is almost pointless, they all just match the Bernanke's and are less liquid. When you get an ES rally like this most of them just go up right with it.
There is talk now of this great GOLD SHORTAGE and runs on the mints etc.. Has anyone questioned this at all based on the fact that the futures markets have not moved? Who do you think these buyers are, Small spec types or Commercial insider types? This is akin to a huge buying binge by small speculators in my view. I suspect this is a pump and dump scheme hoping to ignite a futures rally so those who know now they are stuck can get out a little better. The whole thing just seems fishy to me, but I could care less I trade on technical things not this kind of stuff. My general feeling is this it the dumb money buying not the smart but who knows.
I am hoping the new web site is going to be up any day now so I am dual posting in it and the separate blog. One day this week you are going to check in to the site and viola it will be the new one. This has taken so so long I am going to get it launched and make it what I want it to be over time. It was supposed to take 6 weeks and it is now more than 4 months. I do not have everything exactly as I want it there since time is short for me at the moment. The pay for services section is not setup correctly yet and it is something I have to figure out and will try to do that ASAP. I do have some videos loaded which I will build upon over time. The daily signals are still going to have to go through Aweber like they are now until I can test the lists I have imported to make sure they are all correct. Once I have done that the signals will be in the web site each day so you will be able to just log in and get them. I suspect it will be a month before we get to that point, but will try to get it done faster.
At this point people have seen the changes in the Swing signals and how long we are staying in the trades. We have been in one for 14 days now and another for 7. The markets have been somewhat choppy and that is typical after you get sharp moves in things. There is a natural cycle that takes us from smooth to choppy and back which is frustrating. I try not to press too many bets and stay patient when I think the circumstances are not as favorable for runs. I do not always get it right
This would have to fall into the who gives a ... category. There is no news of any kind I know of other than what appears to be all sorts of people selling their claims to the bad debt firms. At this point it is probably wise to do that because there is no time table for any other distributions, a corrupt judge who is taking a long leave of absence, and a general who cares attitude about things. It does not appear to me any more money will come back to any of us this year. Waiting an additional year just to get maybe another 10% beyond what you could sell for now is probably not that smart, but it is what I am doing. I think this is what happens in most of these cases, you get an initial wave, the reporters go nuts, then eventually they move on to the next Brokerage firm Corleone caper. We have had 5 stories now since PFG of shenanigans with Seg money, FIVE! Some of them actually occurred at the same time PFG did, but the people were not caught until later, then fined. This should confirm what I have been telling all of you, this is going in everywhere and it is a matter of time before another one crashes. If you have not done so split your money up to protect yourself. Also look at the lag time involved in them being caught. Remember if they go down at any point even if it is a day after they do something, your money could be completely gone or tied up in court for years. Catching them a little faster means nothing for getting your money back. Once it poofs the process starts.
If you think Uncle Sam is looking out for you prepare to be disappointed.
Stay patient maybe the beginning of May with it's seasonal bias to the down side will bring us some action.
Tuesday, April 23, 2013
DOLLAR LOOKS LIKE THE INVERSE OF GOLD
While I was perusing the charts tonight I came across the Dollar Index and thought it was eerily similar in an inverse fashion to what Gold looked like recently. In this instance we have a triple top where Gold had a triple bottom. What this could mean is that if we get clear which normally happens on a 4th test, we could take off. There is however, one major problem that I see with that scenario.
We have a significant Commercial short position and high open interest, right at the triple top. We are also following the seasonal very closely so in those instances it matters. We have conflicting information here. The other development that is interesting is the way the Dollar has re-attached itself to the stock market. I say that because that is the way it used to always move. It was only in recent years that it developed this inverse relationship with the Dollar Index.
In situations like this I think it is best not to guess. It is also symbolic of this conflicting scenario that the price action on the daily chart is so choppy. I don't think there is any point in trying to push something in this instance so I am looking elsewhere. Even though this is similar to the Gold market flipped upside down, I don't think the level is as well tested as the support level in Gold was. As a result I don't expect to see the same type of break of it. I think if I had to pick I would prefer to see a sell setup on the daily chart as opposed to a buy.
I was thinking as one report after another came out today magically once again beating the estimates by 3 to 5 cents, what an incredible coincidence that is always is. I want to make sure I understand all this correctly. We went through a tough period where one of the outcomes is that the CEO and CPA firms had to sign off and take responsibility for the reports. We added all these regulations to make sure no funny business was going on. Now we get into earnings season during what should be the most transparent time in history and magically after the "full disclosure" conference calls where the result should be that the estimates closely match the earnings reports that so closely follow, yet all these wonderful magical surprises happen. As my cousin Vinny would say, let me ax you dis? How exactly are all of these wonderful magical events taking place at all these companies from different industries, where they all unexpectedly beat the earnings estimates while at the same time being honest throughout the process of discussing how their business is doing?
This is beyond a racket folks, BEYOND! There is not one single thing that has changed. Keep in mind Price Waterhouse did the books for PFG in the past, during the time the fraud was being committed, yet they are not investigated at all and are even hired by the bankruptcy court in the PFG case at outrageous hourly rates, to investigate whom exactly? Themselves? This insider game is never going to change ever.
The ES bounce today puts us up into an area where we are close to lifting off again. If the decline is going to happen it seems to me we need to hold in this area, then turn down
Monday, April 22, 2013
BANK OF AMERICA REACQUAINTING WITH AN OLD FRIEND
Now that I am in the process of building back up again it is time to re-start my quest against one of the dark overlords B of A. I have labeled via a rectangle what I deem to be a momentum rollover that is taking place in this stock and have labeled the sell zone I am aiming for. Since almost all stocks are basically the same as the indexes with a few exceptions like Apple etc, we are getting a little bit of a bounce in this stock along with the Bernanke's right now. I view this as a little weaker than the Bernanke 500. I have recently had another unpleasant dealing with these people so now it is time to go after them on the short side again.
I was never really able to mount my initial attack on them because of PFG and I had to use the money I had set aside to attack them to survive. I was very fortunate to have set that money aside and not had it exposed to the thieves of the world otherwise known as FCM's. It enabled me to be able to still pay my mortgage and bills while the money has been frozen, and also open some new trading accounts to start trading again. However, I was reminded once again of why I hate them in a recent exchange so time to go on the attack once again. I do think this is a pretty good setup, so it is time to get to work.
My short term momentum indicators are going up in the Bernanke's so I am looking for a bounce for another day or two hopefully setting up a short entry there.
I have spent the last few days copying and pasting the blog entries from my old blog to the new website and formatting and changing image sizes etc which has been a pain in the ...... What it means is I am close to game time. Once I launch it I want to do a webinar for existing clients just as a get started type of thing so I will send out a notice for that once I am ready. I hope I don't botch the technology the first time so cut me a little slack.
I think the Bond market is looking interesting right here.
We have momentum going up sharply here and a rising wedge pattern which can break either way. I am leaning toward an upside breakout because I am looking for stock sells and also the momentum is going up strongly here. However, some of my other tools show if we were to break down they roll over. I guess the net of this is a breakout in either direction can be played. I guess I can't come back and say I told you so on this one, but I just wanted to point this out. If we do happen to break out to the upside on this, I think it could really go.
The next few days could be interesting.
For those who got my video I sent out I think the consensus is that the audio level was fine? I had a few people tell me it was too low then come back and tell me the settings on their computer were off and it was fine. The volume sounded fine on my end when I previewed it.
Friday, April 19, 2013
I don't know how I got on the email lists but a few Gold bugs hit me with the Capitulation skit links last night. Is this Capitulation?
I think there is no question from a short term viewpoint it is. Essentially what this means is that there has been a huge climax of action with a dramatic price change, which this qualifies for without a doubt. Could this be the low? Sure it could be. Newsletter readers are going to get the full monty on this from me this month, so I will not get into too much detail here. However, since I am not biased one way or the other on this from a short term standpoint I thought it would be worth addressing this idea.
This typically occurs when the last remaining person throws in the towel and exits the trade, which results in either a huge wave up or down as people rush frantically in an emotional run for cover type of situation. I used to always lay in wait for these times and try to fade them. USED TO.
I like to make money just like the next guy otherwise I would not be trading. I found it impossible to be consistent trying to fade moves like this. You can see from the MACD how dramatically it fell to what has to be it's lowest reading in years. This is what you get at these points, so far so good. Often it will be accompanied by the other side who has been warning of this now chiming in saying I told you so ( yours truly included in this group ). Check mark number two. Here is what is missing with this whole idea from a longer term view point. The pushers of the original idea that has become jeopardized are typically the capitulators which has not even come close to happening. It is when the greatest promoters of the wrong idea give in that the true capitulation has taken place and these guys have not missed a beat. They are pounding the table about a generational buying spot. Buy the mining stocks, physical gold has record demand, this sell off is only in the paper. Huh? The spot price is not paper ladies and gentleman, it is the price you pay to buy a bar. It is when these people admit they are wrong and sell that the real capitulation will take place.
What we have so far are some of the weak hands realizing they are getting clobbered and as a result running for cover and taking their losses.
The other thing that normally accompanies a capitulation point which is not here is we are typically at multi-year highs or lows, not in the middle of a range of pricing like we are here. Net net here I think even though we certainly have very strong price action that resembles capitulation, it is not occurring at a spot where that would take place which would be probably $400 or less. It has to be at a spot where the Gold bugs are selling for true capitulation to be happening. From a short term stand point we could very easily get a big rally here but the trend is down and it is a selling opportunity when it happens. It may take a while because you have to give some time for a condition like this to work itself "off." There is no doubt we could rally way up and change the trend from down to up and the Bugs could still have their day I do not know the future. The COT data does show this as a buy more than a sell but as you will see in my video at the new web site, these are the COT setups that are not very reliable.
The other assertion is that the fundamentals have not changed. I completely agree with this take. The fundamentals have certainly not changed at all. If anything they are closer to being in line with price as it comes down. This move was a speculative move in a commodity, it never had any attachment to any fundamental of any kind. The fundamentals have been saying this would not last, so they have not changed. I agree with the Gold bugs on this one, although in a way they would not like.
It looks like we are going to get my bounce in the Bernanke's next week at least at the beginning of the week, so we could get a great sell signal right around May 1st which would be "extra good Mr. Coleman sir" a quote from trading places at the end for those who don't get that. Look for the point where the Gold bugs start crying foul and selling out claiming government manipulation etc around $400, that will be capitulation if it happens.
My web designer just told me I have to manually move over a number of blog posts to the new site so this is going to cause yet another delay, good lord. It is a small detail that they were supposed to do this. Thank god they caught the second scumbag in Boston. If I had my way I would torture this guy like nobody's business if he did not talk, but I am sure the pansies in government will recite poetry to him hoping to break him.
Have a great weekend
Thursday, April 18, 2013
I have been asked often about Psychology and what books to read. Here is a somewhat detailed reply to that keeping in mind obviously that all of our personalities are different and I am relating what works best for me.
First of all there is nothing I know of that tugs at your emotions more than the business of trading. Most of us are not conditioned in a way that accepts failure well and there is no way around failing during certain periods of time. As a result one of the things we have to do without question is check our ego at the door. If you can't find a way to do that you need to go elsewhere for your riches. However, at the same time you have to be confident in what you are doing to get you through the tough periods. How exactly to you achieve that balance?
I think it is helpful viewing this business like other businesses. For example, Many companies have loss leaders, products they discount heavily to get people to do business with them in the hopes that they will also purchase something that has better margins in it. A restaurant might offer coupons for free deserts etc, or maybe a combo meal. The hopes are that once you are exposed to them you become a regular customer and the whole process works well in the end. That is a sound business strategy but also you have to realize that during periods of time you are going to net lose money doing it. You undertake this with the idea of the bigger picture.
The way this relates to trading in my view is that often when we are watching a setup for a price move, we may have to probe a few times getting stopped out attempting to catch the move. When we do finally catch it we make up the money in spades. This is not easy to do emotionally because we are losing money in the probing process hoping for the larger picture gain. I don't see that as any different than the restaurant example. As hard as it is to do since we all trade to make money, you can't focus on the money aspect of this. You instill money management controls to stop you from losing too much while probing, and that needs to be enough.
If we think about our Bond System, it is a real life analogy of this. It was like opening a restaurant with a good buzz where many people come on based on the reputation of the chef ( yours truly ). The food was fantastic for a good stretch then all of the sudden there was a month where some of the specials were not as good. Do we just ditch the restaurant or go back to the menu items we have always loved? This may seem a little goofy and perhaps there are better analogies, but I think you get the gist of this.
I remember when I was studying with Kevin Hagerty many years ago, who is an ex-marine and one tough and rough character. When asked about psychology his response was always if you can't take the heat get out of the kitchen. He did not believe in reading a bunch of books written by people who don't even trade, trying to teach people the psychology of trading. I agree with that premise. I remember someone telling me after PFG that I should go see "someone" to help me get through it. What the hell is some pencil neck going to tell me that I don't already know? There have been times when I have been so angry about it the thoughts I had were almost shocking and it is fortunate that I was not face to face with anyone involved at those times. This is natural, why is that a problem? Man up sometimes you feel like kicking somebody's ass and sometimes they deserve to have their asses kicked.
I remember the other day a friend of mine telling me that her husband had been really sick for a few days and did not get out of bed, and she said "maybe you are not like that but you know how guys are." Actually I don't. First off I can't stand her husband he is a pansy of the first order and a complete tool. I have not even had a cold in at least 10 years because of my nutritional and fitness regimen, and perhaps genetics. However, the times many moons ago when I did get them I never missed a beat. I also broke my ankle in a martial arts tournament a long time ago and walked on it for more than a week before it finally swelled up so much it split a pant leg so I gave in and went to a doctor who greeted me with laughter calling me "one of those guys." My view is that you suck it up and get on with it. If you have to hack up some flowers like Bill Murray did in Caddyshack to blow off some steam.
When it comes to psychology I don't make a big deal of it. This business is very challenging but so are many other businesses. At times other businesses lose money also. I think drawing the analogy and keeping it mind might be helpful. It makes you realize you are not alone, it is part of the business cycle, and you have to learn to deal with it. You don't have to lay on a couch like Daniero did with Billy Crystal in Analyze This. I remember the one line out of the movie that is one of my all time favorites and one that applies here. "If I go Fag you die." There is also a line out of a movie called Old School with Will Ferrell and Owen Wilson right at the beginning that is similar. The point is you have to deal with adversity in this just like anything else, so just deal with it.
There is another story out there regarding FCM's screwing around with Segregated Money, The Linn Group. Here is the link:
Here is the most important thing to keep in mind. MF Global was a clearing FCM hence the Merc was involved and put money in to help make clients whole. PFG was a non-clearing FCM hence was not under the supervision of the MERC and the MERC basically said F you. When you have a non-clearing FCM like that basically one person somewhat outside of the process has control of the money. This is how the thefts can happen so easily. The head of the firm can order some employee to do something and chances are they will do it even if it means doing something that is not right. I think the best rule of thumb is to not use an FCM that is non-clearing. This will not guarantee you anything but it does put you in the best possible situation. I think Linn is a non-clearing FCM but am not 100% sure on that. There is another firm out there that people have been asking me about. I think if you check you will find they are a non-clearing FCM. This does not guarantee anything other than if they go down the MERC will claim they did not supervise them therefore screw you like they did with PFG. One of the big reasons MF Global worked out so well is that the MERC chipped in a huge chunk of money. They won't do this when a non-clearing FCM goes down.
Back to the Bernanke 500
Here is how things stand now as of Thursday evening.
I have mapped out once again my scenario I through out in the prior post with a different look added. What this shows is a long term measure of momentum and what it would look like if it rolled over and we got a rally against that roll over. This gives essentially a first retracement entry which can be very powerful. I always want to get in as quickly as I can once I identify a trend change. I am hoping this sets up like this.
Have a great weekend and thanks for reading
STOCK MARKET TEETERING POSSIBLY?
I will get to the Stock Market in a minute but first I wanted to show a setup in Natural Gas that is worth watching. What we have going on here is what I refer to as a COT Double Top. What this entails is a equal high in the price where the commercials have become heavy sellers trying to potentially contain the price level at hand.
What is also happening here is that we have a very sharp rise in Open Interest that is comprised completely of Small Specs and Large Traders. The commercials are not buying they are selling on a relative basis and heavier than they have in years. This tells us that basically the volume drive is not from the biggest players and as a result I am looking for reversal patterns up here. This is a setup not an entry. The trend on the daily chart is clearly strongly up, so I won't get into fading the trend until I see something telling me there is a trend change happening that ties into this weekly setup. We may not get it and could sail merrily along. If we do happen to break through upward out of this pattern we could see a huge run up here. This is almost the inverse of the Gold situation, where in that case there was huge support that held, held, held, then broke and the bottom fell out. This is that upside down more or less.
I just checked into Blogger to check comments and found my whole post for today disappeared and was not even in the draft folders. What I had talked about was the short term sell signal I twitted about the other day, how it had triggered and what I was looking for. Since this is now a bit late to the dance, here is the chart I had in here that disappeared somehow.
This shows an ideal path for us that we may not get but it would be nice if we did. We are getting the short term support break which does not necessarily have long term implications beyond just the next few days, but it is one small red flag that something bigger could be in the works.
For now the sell below the low of Tuesday with a first profitable open exit, is the quick short term profit trade I was mentioning. Any open < 1542 in the ES would be the exit. Let's hope we get this break and bounce scenario because if we do I will be a player. This market is the most manipulated market in the history of trading so the setups have to be just what I want to play them.
In the wake of the Gold wipeout as everyone scrambles to find an answer like the Keystone Cops this gem was on the web. Had anyone been reading here for the last year they would already have known this.
Here is a quote I had also put in the earlier post that poofed that I found amusing in a Gold Bug site:
Wednesday, April 17, 2013
GOLD BUBBLE NOW WHAT? WILL THIS BRING STOCKS WITH IT?
It is now time for all sorts of experts to come out and explain why this huge decline took place. The bearish people have one story and the bullish people have another one. There was one in particular that was made about some looming huge default of something or another. I have been asked what I think happened?
What happened is simple, the market was in a down trend and it had an expansion of price and volume in the direction of the trend, exactly what we should expect to see from time to time. There is no doubt this was one heck of a move, but it was in the direction of the trend, so from that stand point it is business as usual. One of the things people need to learn and it takes time and some lumps like this to learn it is, you need to trade in the direction of the main trends. You will not always be right, but what you will get is the larger moves.
For those of you who are reading desperately trying to understand "what went wrong" you are wasting your time. Let's say you finally find the one MIT grad who truly turns out 20 years from now to be the guy who identified some exact intricate pattern that triggered this acceleration, what good does that do you? Wouldn't you rather be a dumb ass who just knew the trend was down and knew nothing about fiat currencies, stores of value, Jim Rogers, etcc and was just short the market because you did not know any better?
I did see one story that someone sent me a link to where one gold bug actually admitted Gold is really just a commodity and it is not a store of value. LOL! Of course, that is what I have been telling people. Think about this and look at the next chart. What about if you knew Gold was a commodity that generally but not perfectly tracked the stock market. You were in the year 2002 where Stocks were completely out of favor and you wanted to go long stocks. Wouldn't it have made sense to the simpleton to have bought Gold?
I am not sure about you but if I showed a 5 year old this chart and asked him if it looked like these two things moved in the same direction or in opposite I am sure he would tell me they move the same. All of us want to engage ourselves in understanding the why of things but it is the what that in the end matters. I personally cannot imagine going through all the brain damage you have to in order to go through all of these arcane economic theories of macro economics and then trying to make a trading decision from it. How about just following the trend putting on the trades, then going to a sports bar with your hat on backwards with your buddies and saying fuck a lot!
Going back to my reference to the movie Arthur, "of course I took the money I'm not crazy." That is the guy I want to be not the one with the bow tie, horn rimmed glasses and flannel slacks wowing audiences about economic theories. There is a reason economists rarely catch bubbles correctly, they are tied up in their underwear with all of this nonsense. The way it looks to me now on just the basis of being a dumb ass with no other ideas, the next price target appears to be 724. Does this mean we will get there, of course not. It is simply the next significant support point. Often these targets are not hit and even if this one is it will take time to get there. The moral of the story is we are in a down trend, sell the rallies. We might get a good sized rally in this one based on how sharply this dropped, but it will be a sell when it happens. Keep it simple.
Will this result in a stock decline?
The same logic should apply to this discussion. The stock market is still in an up trend so it is not the same scenario as we had with Gold which was in a down trend. There are ideas going around about whether we will get a margin call selling wave in stocks and I don't think that will necessarily happen. What you have to keep in mind is that the stock market is where it is because of the way the FED is manipulating the ES, so will the FED have margin calls? Will they stop calling B of A ( allegedly ) and telling then what they are about to do in t 30 minutes so they can front run? I doubt it. The individual investor leveraging is not what has created or carried this rally.
I am concerned that the stock market is a bubble but as we saw with Gold and Real Estate and the Internet bubble, these things can often inflate for longer and go farther, than most people can anticipate. The trend has not broken yet.
I like to keep it simple in this regard, time for the sports bar and the swearing, and oops don't forget your hat!
Monday, April 15, 2013
GOLD BUBBLE HAS POPPED NOW WHAT TO DO IF YOU ARE CAUGHT ON THE WRONG SIDE?
Apparently nobody thought my picture of the FCM heads running with bags of money was funny? I guess I have to work on my comedy a bit. As we watch the unwind of what I have been consistently calling the biggest bubble in history if you go back and read all of my posts on this over the last couple of years, the question is what to do if you are caught and getting smoked? My answer will surprise most of you. Today was interesting reading all the takes on what has transpired and one thing came to mind that made me chuckle. There is a line from the newest Bond movie where the Bad Guy who is kind of funny says to Bond, "James all this running a shooting and fighting is just exhausting" as he was getting ready to shoot him. When I read through all the explanations of what happened, I got exhausted. I can't imagine working that hard and creating all these obtuse reasons to explain the obvious. The market was in a down trend and we got an accelerated move in the down trend. That is it, that simple. Big moves most often happen in the direction of the trend. Why get into all this exhausting screaming and fighting over it? Yes there were possibly big orders in to sell, but there always are big orders in the direction of the trend be it up or down.
YOU STICK TO YOUR PLAN
All of the things that surround bubbles and how they get built then ultimately unwound is pretty consistent. This is why I have been very good at spotting these things consistently. One aspect of the process is one that relates to what to do now if you are caught?
If you are convinced that it is a safe haven asset you should not be deterred by this one bit. That is a long term view of things and you should be buying more on these sharp declines if that is your plan. It is not mine and I am in the opposite camp in regards to that as readers know, but if that is your view stick to it. If you have identified a scenario where you are proven wrong if something happens, follow that also. I am addressing this whole notion of Gold being this magical savior in great detail in my Newsletter this month.
What often happens in bubbles is people go in with one objective and get moved by rhetoric and change their plans. I am sure there are some people who initially went in lightly then ultimately bought the story and levered up as prices rose. Now they are getting killed on the add ons and don't know what to do. This is why you always have to have a plan, it really helps during situations like this. Stay committed to it. If you are going to hold this for 10 years no matter what, don't listen to shorter term people. I have been on record as consistently warning this would happen and that was from a longer term stand point, so I have not been caught by surprise. However, if you are someone who has bought the story stick to your plan whatever it is.
I have one long term argument that I am sure bullish people are looking at on the chart above. If you are a wave counter you could certainly claim this as an ABC correction in an uptrend. There is very good symmetry to this which supports the argument. The next step is you place your retracement ratios on the chart and try to pick a point in space to buy. You will see my view on Fibs in my website in a video I have there, however some people live and die by them. To me this price action is more much like a wave 3 than a C wave in Elliott theory, so I would have a 1-2-3 count here which would call for far lower prices. It looks to me like the target on a monthly chart would be 724 at this point.
The main take away from this post is that stick to your plan. If you are a bull act accordingly, if you are a bear act accordingly. No matter what side you are on don't get tied up in all the BS stories on either side trying to explain things. It hardly matters what the explanations are. We are in a down trend now on even the Monthly charts. If you go back far enough you will see where I said when it breaks we will see consecutive $100 down days and that is what we are seeing. When bubbles pop they are great opportunities even though they are hard to time due to the nature of how they are constructed.
I have been saying I am getting a bad feeling about the stock market and we are starting to see the first sign of some real weakness today. For those who read the Newsletter and asked me about the difference in the pattern between the Russell and the ES, you are seeing how well that tool I gave you works. That alone is worth years of the cheap annual fee for these monthly releases. I hope some of you used that to your advantage in your trading. In looking at an ES chart, 1533 is the key short term level that needs to hold. I suspect Ben and company will be buying heavily during the night sessions if we get close to that level to try and hold it above it. If we do get heavy volume they won't be able to hold it up.
You can see in the above ES chart my highlight bars turn back to red if today's low is taken out tomorrow. I would not stress out about what they are you can see they have not been that great recently going back and forth incorrectly. We also are nearing a pretty significant short term pivot area. If we get below that we have the first sign of some further trouble. It is not nearly as significant as the Gold support level I had pointed out at 1530 ish, which was a level that had held for months. This is a very short term point. What I am looking for is a break of this and then a bounce. The Russell as already blown way through there, remember I pointed out how much weaker it was. This is likely where I will sell the bounce.
Stick to your plan regardless of whether or not Bill Gross, Chris Johnston, or Zero Hedge agrees with it. I think I have made my view pretty clear. We are experiencing an enormous melt down so there is going to be a violent snap back here at some point probably soon. If we were to get another big down day that is likely a good profit taking point.
Friday, April 12, 2013
DIVERSIFICATION, THE BEST REASON FOR SPLITTING UP YOUR MONEY
For those of us PFG victims and for those who will be victims of other FCM crashes that are surely coming, I think you should save this blog post in your favorites and refer back to it over and over. This is probably the most important article I am ever going to write.
Look at this chart, which shows the Gold crash today ( Friday ). This could be a crash or an explosive rally in any market, it is just the one that is at hand now. With the story about IB that came out as well as the others, and in the wake of PFG and MF and Sentinel and all the others, we know one thing with 100% certainty. At some point in the future and probably not too distant future, some of us are going to wake up with our accounts frozen due to a FCM bankruptcy where they have stolen segregated funds. In this instance you will not be able to place any trades, and you will have to sit there and watch your positions get decimated if you are positioned wrong waiting for a liquidation process that in the case of PFG took two weeks. During that period you will not be able to do a thing to protect yourself in those accounts. This is exactly what happened to us with PFG. Keep in mind that even if an FCM has not stolen segregated funds which is the in vogue move, your money would still likely be frozen up in the bankruptcy process for a very long time. The whole concept of segregated funds is that they are supposed to be separate from this process but we have seen that is almost never the case. There are no segregated funds, that is an urban myth.
Here is what you can do to protect yourselves against this. If you have another account somewhere, you can put on opposite positions essentially hedging and assuring that your net exposure in your total portfolio is zero. With PFG they wiped out all existing orders so even if you had a GTC order in it was cancelled and you had to wait until they got to you to have your trades exited. This cost both Michael and I dearly with PFG. I always had previously had other accounts so I could hedge in this instance and was fooled by Gensler that piece of garbage into thinking everything was ok. I would take an Octagon fight with him as a fall back to my Wasendorf request since that is going nowhere. I see why Barry wants him to serve another term based on how dishonest and corrupt he is. He and holder should get a room.
Granted this would not be a perfect hedge because you will never know in a timely fashion when your positions have been liquidated since the communication will be terrible. We had no idea at all how we stood and there was nobody we could call. If you put on opposite positions in other accounts you can at the very least minimize the damage of a naked position in a situation like we have now with Gold. You would likely be net naked the other way at some point without knowing since the communication on your exits in the bankruptcy will be late by a few days at best. However, you have protected yourself as best you can. I think the ideal balance is really dividing your trading capital by 4, having 4 different brokerage accounts. This way the theft will only be 25% of your capital. Beyond that the next option is to use the idea of Notional Value.
What this means is that if you have set aside $100k for a trading account, deposit way less than that in the firm but trade it as if you have $100k. If it comes to margin calls wire the money in. Initially I was against this idea and it does take some mental toughness to see the inordinate percentage swings in what you see in your account statements. You have to view them within the context of a $100k balance. This is what I am doing now because of how sure I am of many more segregated thefts. The regulators have created a scenario where there is nothing really to fear if they decide to swipe some money. If you are a democrat you won't even be charged with anything see John Corzine, so why not take a flier. They will catch people sooner now but that will not save your money. Once it is gone it is gone. Just because they happen to catch someone sooner, the firm will still have to go through a bankruptcy process that will take years and your money will be gone, tied up in the process while everyone else gets paid their Corleone's for doing nada. They can't just claw back money with a phone call just because the NFA might be lucky to catch someone through electronic monitoring. You need to understand that once they catch them it will just start a multiple year process, you won't just get your money back and be fine. Keep in mind that if they steal your money and are caught the very next day after using it to make a trade or to run their company, the process of getting it back is years not days or weeks. As a result catching them sooner does not really mean much. It could make it easier for the trustee to claw back the money once the bankruptcy process unfolds, but that will be at least a year from the shut down if not longer.
Create your plan in regards to this and stay with it. The world has experienced a sea change and the days of large balances being safe are long gone. Do not make the mistake I did. I cannot emphasize enough how important this is if you are serious about trading. My trading was absolutely debilitated for 9 months due to this. Protect your money nobody else will. I think if you read the IB response to client inquiries and reconcile that with the complaint from the regulators, something is very wrong. This two versions of the same incident are quite a bit different. This is especially strange in light of the fact that they supposedly self reported. I know what I would do.
If it does happen to be true that the model of the FCM makes it such that they cannot operate profitably on their own then they should raise commissions to the level that makes the business viable. We have seen this in many industries when cost cutting happens through competition, only the strong survive. Monitor the earnings of the companies where your money is and if they are weakening dramatically take off. If you have the guts to have it at a private company now I tip my cap to you, you have more guts than I do. At some point in the future perhaps many years from now there might be some type of insurance plan but I doubt it. It is pretty clear that the whole wall street insider gig is living off OPM ( Other people's money ) so if the segregated money was truly segregated the whole premise of the game they play would be gone. This is why I expect nothing to change and more shenanigans to go on. It is good for business.
You may have caught me twitting about this and for those who read here regularly you know I have been calling for this for a long time, you can read the archives. I have recently been writing about it a lot. I am not happy to see this melt down because millions of people have been suckered into this just like every other prior bubble that has ever happened. However, if you are one of the people who got suckered, it is your fault for not doing your research and discovering that all of this BS about safe haven is exactly that. If you are a Newsletter subscriber you will see full coverage of this in the next issue. It is too bad since I have already written the draft, that I did not feature it last month, but I was on record in here on many occasions warning of exactly this type of situation.
When the next over hyped bubble happens and experts who make money from you buying into the story start talking, raise your middle finger then turn and walk away, in that order. Timing bubbles is almost impossible so there was no way of getting the exact high. Where you can save yourself is by not chasing markets that are extended. The stories always get really good right at the tops. The Stock Market is getting into this mode right now. We still have a tremendous up trend but the market is rising so contrary to so many things that should cause it trouble, it is a matter of time before price marries up with everything else. At this point I do think it is becoming a bubble being inflated by the FED to manipulate public perception. This does not mean it cannot go higher. it is likely we have low rates for many years to come and that is the main driver of this bubble, so timing this one could be really tricky. I admit to being early on Gold. The conditions for that bubble to burst were there for a long time before it finally did. Now we are getting the "it is still a great long term investment" story. Ughh, these guys just never quit. I remember the gal who cuts my hair telling me she was loading up a pyramid of condos in Texas against my advice in 2005 - 2006 claiming it was as an investment. Needless to say she puked em all out and lost hundreds of thousands of dollars. When someone tells you Gold is a great long term investment, your thought should be:
NO IT IS NOT
It is a commodity that goes up and down, trade it. It will become a good investment again under $500 or somewhere in that range perhaps a bit lower.
Trading a market in a bubble phase is no different than one that is not. It is more for longer term investing that identifying bubbles is important. What you don't want to do is buy into them late. You need to keep your original position until the time comes when the trend changes. There is no way of knowing how far they might go. When you pick price levels in space against trends you are asking for trouble because you are against the trend. Surprises come in the direction of the trend most of the time like today in Gold and Silver. They are both in downtrends on all time frames, so a big down move is less surprising than a big up move would be.
Gold will not go straight down under $500 without various periods of rallies and sideways moves, but there will come a time and we may see it right here where the emperor is exposed and all the weak hands rush the exits all at once. This will result in consecutive $100 down days which we could see right now. This will be very interesting to see what happens. After today we are short term very very oversold, but the trend is down. We are likely to have a snap back here after today, but we have a waterfall out there lurking that is going to surprise everyone except those of us who trade commodities. For us it is business as usual since we have seen the boom and bust cycle many times. Ho hum business as usual.
Thursday, April 11, 2013
CHASING THE HOT HAND
I was on a conference call today with some top traders, some of the best in the business and one topic came up that I found interesting. Every single one of them with no exceptions has had or currently has one of more trading services. I asked them at one point how they handle the ups and downs and surprisingly they all said that one thing they know will happen is the minute they get on a hot streak new clients will pile in the door. They also said the minute they get on a cold streak everyone leaves. This type of herd mentality is why most people do not get ahead in trading.
There are many counter intuitive things you have to do and believe me it is not easy to do some of them. One of the traders, probably the most well known to me of all of them, mentioned a trading program he had that went through a good sized draw down last year. He told me the very last client left the day of the low in the draw down and by the end of the year it had far exceeded the prior equity peak. The problem of course is that not one single person of his original group was around to see the turn around and new equity high.
If you look at the chart above would you want to be the guy who bought at the high? That is the equivalent of chasing the hot hand with trading programs. I am not picking on that market in the chart, it could be any market, it could be the stock market. The point is that getting in after a rise of that amount is not a high percentage play.
If you plan on following a trading program from me or anyone else, I think it is a good idea to outline your plan. If the plan is to go do something define how you will do it. Set it aside for one week and do not think about it. After a week come back to it and see if it still makes sense. I would be willing to bet that if the plan was originally at one point to find the hottest trader you could find and just follow him blindly once he gets hot, you would think a week later that might not be such a great plan. It would be a great plan to follow a great trader, but it would not be a good plan to wait for him to get on a hot streak. It would be a better idea to wait for him or her to have a down period. I will give you a real life example in my life. Last month we had a bad stretch in our bond system and Ryan at Robbins put a new client of his into my Bond System atfer the losing streak. The logic was that he believes in me and my system and told his client if he wants to follow me now is the time to do it. The client thus far has 3 trades all wins, the last 3 trades we have done.
Whether it is me or anyone else, the time to start following someone if you believe in them or their programs, is after a draw down not after a big run up in equity. This does not assure anyone of anything, but it is a better probability play. It is how I manage my money with my Bond System. When it goes through bad periods I trade it more aggressively at some point looking for the reversion to the mean. There is any guarantee that a draw down won't get bigger or just keep going. However, we know there are always going to be draw downs, so if it is in your own trading and you believe in what you are doing stick with your plan. You establish and uncle point and if you reach it stop trading and re-evaluate. The uncle point needs to be realistic, it can't be 2 ES point on a 75 tick chart, and it should not be $5000 on a 75 tick chart either. Something more moderate in them middle would be best.
The moral of the story is don't follow the herd they always wind up going off the cliff.
Have a great Friday and weekend next week is bound to bring some action since this week was quiet.
Wednesday, April 10, 2013
SEGREGATED FUND THEFT
This is a picture taken by reporters at a recent commodities industry meeting of a couple notable president's of FCM's. It reminds me of one of my favorite movies Arthur where at the end he comes back over to Susan and said "of course I took the money."
The story broke yesterday about Interactive Brokers being fined for screwing around with the rules as they pertain to segregated funds. I know I have readers and clients who use this firm so I thought it would be a good idea to talk about this incident.
It is amazing how common sense is never allowed into conversations to solve problems. When treatment centers treat drug addicts they take away their access to the drugs. The solution to the issues with Segregated Funds ( now that term is a f.....king joke at this point ), is as simple as the day is long. Take away their access to the drugs.
The only way this problem will ever be solved is to completely remove all access to client funds. Of course the industry does not want this because then it takes away their drugs. The have to fall back source to steal money from in the event they get into a bind. The temptation is simply too great, lose your business or take money that is just sitting there. I think since we are seeing so many incidents of this that the temptation to screw around with the money is too great for most people to pass on.
I have to admit to not being the most objective person around when it comes to this now having been burned. However, if you look back at one incident after another of a company making a public statement trying to soothe angst, when a story has broken, it is very hard to believe any corporate executive. Wasendorf of course released one of these statements after MF Global. I remember Lou Saban the football coach releasing a doozie the day before he changed jobs. Unfortunately lying has become so common that it is almost part of the job for a CEO. As a result I do not even think it is worth any effort reviewing the release from IB on this matter. What would you expect them to say?
I have no idea whether or not there are some deeper issues going on here or not. I left this firm long ago because of their terrible fills and customer service ( Peggy from the Ukraine from the Mastercard commercials ). I did mention I was concerned about them when I saw them getting into real estate loan with almost no margins at all. That told me something might be going on. That was a year or so ago, but it seems to me that the time of when this violation occurred was possibly around that time. I am not sure about this I am thinking out loud. I am going to use something they gave to one client in an email here which was news to me.
The protections available under the Securities Investor Protection Act ("SIPA") are only available in the context of a liquidation proceeding of a SIPCmember broker-dealer and relate to the "custody" of your securities at the SIPC member broker-dealer. Thus, if a SIPC member broker-dealer were to fail at a time when a customer had securities and/or cash from or for the purchase of securities in the custody of the SIPC member broker-dealer, in most instances it would be SIPC's obligation to restore those securities and cash to the customer, within statutory limits. That does not mean, however, that the customer would necessarily receive the original value of his or her purchase. SIPC does not protect against the decline in value of any security. In a liquidation proceeding under the SIPA, SIPC may advance up to $500,000 per customer (including a $250,000 limit on cash in the account).
Interactive Brokers Corp. and Interactive Brokers LLC are both SIPC members. However, other entities using the same name, such as Interactive Brokers (U.K.) Limited, are not SIPC members.
SIPC does not protect forex transactions. SIPC only protects cash to the extent it is on deposit for the purpose of purchasing securities. SIPC does not protect cash, even if held in a securities account, if it is there for another purpose like conducting a forex trade. However, if cash is held in other currencies to purchase securities, then it is protected. For example, if you deposit Euros for the purpose of buying shares on the FTSE, the Euros will be protected. However, if you are holding Euros as a currency trade, the Euros will not be protected.
What I find surprising about this is that I had been under the impression they had a sweep into an FDIC insured account like TD Ameritrade and from this it is clear they have no such thing. You can see that in the event of a company crash you have no protection. We all have learned the protections supposedly offered by the commodities exchange act is a farse and that is essentially what is stated above being what you get with them.
If you read the complaint you can see that there was a period of time that had they gone down a heck of a lot of money would have been missing and you would be like me waiting for years hoping to get some of it back. Fortunately, nothing bad happened during that period. It seems to me when I read the complaint they were playing a dangerous game with currencies and then claiming oops we did not mean it etc..
It is up to everyone to make their own call but I think no matter who you are or where your money is, if you are going to trade futures at this point you had better have your money divided up into multiple brokerage accounts. If and or when we enter into another market down turn you can bet your sweet bippy a few FCM's are going to go down and take clients with them. Keep in mind these shenanigans which now include IB, Cantor Fitzgerald, and also a large Japanese firm whose name escapes me, are going on during a time of one of the biggest stock market rallies of all time. What do you think will happen if we get a 30 or 40% decline? POOF is what will happen.
We hear that one of the problems that "causes" FCM's to screw around with client money is that the margins are so small it is hard to make a profit and stay in business. I guess we are all supposed to accept that and say well then steal our money to survive. If you look at what the CFTC is doing, it will have no effect at all on preventing more of this crap, ZERO. They also don't want insurance. Where that leaves us is... "When you have eliminated all the possibilities what is left no matter how improbable it might seem, is the explanation." In this case what we are left with is they don't care if more of these things happen. If they did the regulations would be such that they have no access to the money directly.
I can't tell anyone who might have an account there what they should or should not do, but I do think the best way to proceed is to split your money up no matter where your money is and that includes banks to based on what we are seeing happen as well as brokerage firms. That is just being smart it is not being negative or paranoid. I wish I had been more paranoid or negative when it would have mattered and had my money split up like I am recommending here.